Is Jurassic Park Playing in Silicon Valley? Renée Jones on the Unicorn Stampede in Startup Finance.

00:00:31 Andrew Keen: Hello, everybody. Things change dramatically in technology and in business. Twelve years ago, there were only 39 unicorns, these private companies, mostly tech companies that are worth more than a billion dollars. Everybody loves unicorns, especially people who invested or work in them. Today, there are over 1,400. They're worth collectively over $7 trillion. They're mostly in the United States and China, over 1,100 in the United States, almost 300 in China. And, of course, the most notable are Anthropic and OpenAI, but together, they are, in some people's minds at least, driving the American and indeed the global economy. So they're, for most of us, a good thing, but not according to our guest today. Renée M. Jones is a graduate of Harvard Law School. She's a tenured professor of law at Boston College, and she has a new book out this week. It's called Untamed Unicorns: Why Startup Finance Is Broken and How to Fix It. She's joining us from Boston College. Renée, congratulations on the new book. Before we get into your arguments in Untamed Unicorns, do you think that unicorns are, in a broad sense, are they a good thing? I mean, do you celebrate them? Leaving aside the finance issues.

00:02:06 Renée Jones: So I— to answer that question, I guess I would say I do celebrate the, the innovation and the technological advances that, startup financing system has brought to us, and I think that's something that we do need to appreciate. There is something about the financing system that helps to support, companies getting off the ground. But the definition of unicorn is a billion-dollar startup, that's remained private, which means that, it's not providing disclosure to the public, and it's not governed by the corporate governance rules that apply to public companies of about the same size. So from my perspective, you know, the problem isn't so much that there are these billion-dollar companies. The problem is that we don't know a lot about their operations. And by operating in secrecy, they're able to sort of avoid or evade accountability and in many instances, engage in anticompetitive behavior or even fraud, where— and it's very difficult to detect that when there are no disclosure rules.

00:03:09 Andrew Keen: The current administration has announced new rules to make IPOs great again, apparently, like America. Why, Renée, haven't these companies gone public? I was around in the nineteen nineties. In fact, I had my own startup back then, a dot-com. Fortunately or unfortunately, we never went public and lost lots of other people's money. But, back then, if you had any business model, you did everything you could to go public, and many people did. If you survived, like Amazon and Yahoo, most failed. Why, the current darlings of Silicon Valley, the Anthropics and OpenAI, why aren't they public?

00:03:53 Renée Jones: Well, the short answer is that they don't have to go public. The longer answer is a bit more complicated. So it used to be that, you know, a successful startup, as you mentioned, would really seek to go public within five to seven years of its founding. And now we're seeing startups staying private for upwards of twenty years. And there are a couple of reasons why that was the case. First, if they, wanted to grow, continue to grow, and they needed to raise more capital, that capital, that money was only available in public markets. And then second of all, even if they didn't need, to raise additional money, there was a legal rule. I call it the 500-shareholder rule, which required any large private company with 500 shareholders or more to register with the SEC. So as companies grew and they started to approach that 500-shareholder threshold, they would determine, well, it's a good time to do our IPO because we're going to be required to provide that information to the public anyway. And so Google and Facebook, for example, reportedly went public because of the 500-shareholder rule. But then a couple of things changed and I my book focuses on some of the legal reforms that have allowed the private markets to expand and startups to stay private longer. So the first big change in the law was a 1996 law that lifted the cap on the size of private investment funds. So I'm talking about, hedge funds, private equity funds, or, venture capital funds.

00:05:22 Andrew Keen: And is this, I don't wanna go too technical because this is in the law school class, but is this, is this the National Securities Market Improvement Act of 1996?

00:05:32 Renée Jones: That's it. That's NSMIA.

00:05:34 Andrew Keen: Couldn't they have come up with something a little sexier, Renée?

00:05:37 Renée Jones: Probably. Yes. It's— it's kind of a mouthful.

00:05:39 Andrew Keen: But I'll basically admit, I'd— you know, I wouldn't say I'm an expert in this area, but we do lots of shows on it. And I hadn't heard of this. Tell us about this law. Who was behind it, and what was it intended to do?

00:05:51 Renée Jones: It was intended to basically, more or less deregulate, the securities markets and just make it sort of cut some of the red tape for both private and public companies. But one of its provisions said that a private fund, that used to be capped at a hundred clients or a hundred investors, could have an unlimited number of investors. And so, these private funds wanna stay private. They don't wanna have to become, public investment companies and comply with the rules that apply to mutual funds. So once you lifted that hundred-investor cap, the amount of money in private markets just began to mushroom. And so, private funds assets under management expanded from well below $1 trillion before 2000 to, more than $17 trillion today. So there's much more money available in private markets. And so that means that startups can start to raise all the money they need in private markets. They don't have to necessarily go to public markets to raise the money that they need. So that was one big change. And there were a lot more a lot bigger funds and a lot more, what I call nontraditional funds. Nontraditional investors started to invest in startups, and venture capitalists were competing with these other nontraditional funds for the opportunity to invest in the most attractive startups. But—

00:07:12 Andrew Keen: Renée—

00:07:13 Renée Jones: Yeah. Go ahead.

00:07:14 Andrew Keen: Renée, as I said, a startup entrepreneur, we all wanted to go public because that's how you made your fortune. You've cashed out, so to speak. Today, though, my understanding, and I know that you deal with this in Untamed Unicorns, is that the people who work at OpenAI and Anthropic and many of the other unicorns have already cashed out. You don't need to do an IPO to cash out. Is that a fair analysis? And why has that changed?

00:07:44 Renée Jones: So they're not forced to go public anymore, so they're staying private longer, and that has created this issue of liquidity for early investors and employees. And the solution to that has been the development of private trading markets for, startup company shares. And, these start these private trading markets were enabled by another change in the law, which is the JOBS Act, which I think more people have actually heard of. It stands for Jumpstart Our Business Startups Act. And that law

00:08:11 Andrew Keen: What year was that?

00:08:13 Renée Jones: That was in 2012, and it lifted the cap on the number of shareholders a private company could have before it had to register with the SEC and become a public reporting company. So the 500-shareholder rule that I referred to earlier is now a 2,000-shareholder rule, but employee-held shares don't count. So now startups can stay private as long as they want. Right? And we're what we're seeing is IPOs occurring when, you know, the investors get impatient, and it's really a liquidity event and less of an opportunity to raise additional capital because the capital is generally available in private markets. That's starting to change, I think, a little bit with, the AI because the capital it's a very capital-intensive industry, and so they are looking to go public to raise some of the funds. Like, you mentioned OpenAI and Anthropic are planning their public offerings. But, you know, when you're a platform company, the capital needs are not that intensive, so they could stay private indefinitely. So the private trading markets, which I mentioned, those are companies like Forge Global or Nasdaq Private Market or EquityZen. And they basically are electronic platforms that are set up to allow insiders to sell their shares and then outsiders, including retail investors, to purchase shares. And so there's trading in these shares even though these are private companies, but there's not a lot of information available to inform that trading. So those markets are fairly illiquid, but they do provide a little— an outlet for those shares.

00:09:42 Andrew Keen: Yeah. And it explains why I'm talking to you from my home in San Francisco. It explains why the real estate market in San Francisco is, to put it politely, frothy. There's a lot of cash around, a lot of it through those secondary markets. So the subtitle of your book, Renée—

00:09:58 Renée Jones: Mhmm.

00:09:58 Andrew Keen: Untamed Unicorns, is why startup finance is broken and how to fix it. So far, you've explained what's happened, but why does that mean that startup finance is broken? OpenAI and Anthropic are doing remarkable things on the AI front.

00:10:15 Renée Jones: Mhmm.

00:10:16 Andrew Keen: They seem to be able to survive as private companies. They're taking in huge amounts of money, hundreds of billions of dollars in investment. They're generating significant revenue, although they don't seem to be profitable. Why does that suggest that startup finance is broken? It seems to me, or it might seem to some people, that it's actually working rather well.

00:10:38 Renée Jones: So in my book, I focus on startup financing failures. I— I focus on startup frauds. I— I focus on misconduct, mismanagement, wasteful spending, and, mistreatment of employees. And I argue that all of these problems sort of started to crop up when startups started staying private longer, and founders began to get more power as opposed to the investors, the venture capitalists that are financing their growth. So what we saw— we saw was a shift to a founder-friendly model of financing. And in this founder-friendly model, the founders get, shares that have super voting power. So the startup founder will have 10 votes per share. They can tend— they tend to be able to then control who's on the board of directors. So they're essentially choosing their bosses. And VC investors who used to provide guidance and oversight have really lost that ability to discipline misbehaving founders or to just dismiss a founder who's, not managing the company effectively or otherwise engaging in fraud. And so we've seen, major frauds at companies. Of course, FTX, I think, is the most recent startup blowup.

00:11:50 Andrew Keen: But Sam Bankman-Fried.

00:11:52 Renée Jones: Bankman-Fried. Yes. Theranos, which was the blood-testing company, the blood-testing technology didn't work. That became a multibillion-dollar company.

00:12:03 Andrew Keen: Of course, most associated with—

00:12:05 Renée Jones: Elizabeth Holmes. Yes.

00:12:06 Andrew Keen: Holmes who went to prison. You know, I take your point, Renée. But yesterday— or earlier this week, we did a show with Claire Stapleton, who has a new book out, on Google and her experience as an early employee or relatively early employee at Google. And Google went through the other IPO world, the one that you seem to be mourning. So, in fact, did Facebook, and yet these are companies that don't seem to behave themselves particularly well. I mean, Stapleton's book is all about irresponsible bosses and sexism and all sorts of other unpleasant things at Google. Mark Zuckerberg's hardly a pinup on any front for morality, and one of the reasons he isn't is, of course, because he has unusual voting rights. So, the dot-com successes, and we can say the same about Jeff Bezos and Amazon and their labor practices.

00:13:04 Renée Jones: Mhmm.

00:13:04 Andrew Keen: Why is that different?

00:13:06 Renée Jones: So, I mean, I think that's a really good point, and I think it's a really important point. And, one of the things that I— that my book argues is that this founder-friendly model, this dual-class capitalization was something that was started at with Google and Facebook because they were facing that, mandatory public registration obligation. And that's when this, dual-class model was developed so that they could feel comfortable going public even though— without having to give up power. They were gonna be able to maintain control with this dual-class model, but that was put in place just ahead of their IPO. But it remains in place today, and so it's really not that surprising that, when there are issues that come up at a company like Google or Facebook, misconduct, mismanagement, overspending, there's no consequences for the founders or the CEO because they control the firm and they control who's on the board of directors. So in some sense, this problem that sort of started as a solution to getting startups or getting startup founders comfortable with going public, sort of prolongs some of the management issues or the governance issues that I write about in my book about startup companies. So this dual-class model, as I said, for Google and Facebook was right before their IPO, but now it's very common for a startup founder to gain control of the startup well ahead of the IPO in the second or third round of financing, you know, once they hit that $1 billion threshold, $1 billion valuation threshold, the unicorn threshold. So the problems just start to develop earlier, but then they will continue, of course, because the dual-class model, dual-class capitalization model ensures continued control even after the IPO.

00:14:52 Andrew Keen: I take your point. But on the other hand, of course, some of our, some of our founders and CEOs of unicorns are at least seeming to be, civically responsible. Dario Amodei at Anthropic, even Sam Altman at OpenAI, although some people don't really trust him, and Amodei is a controversial figure. Why shouldn't we trust these people, Renée? I take your point that they have more power, but they're brilliant people. They're risking themselves. They don't seem to be that interested already enormously wealthy. In fact, I think I'm not sure how many— how much stock in, an OpenAI Sam Altman currently has. So why wouldn't we trust these people? They're the best of the best, the finest of the finest.

00:15:43 Renée Jones: Well, they've definitely been able to acquire control over very important and powerful and highly valued companies. So I would give you that. My concern is the governance structure of these unicorns and the need for both disclosure so that investors and the public understand what's going on at these companies and also so that investors, can provide appropriate oversight. So when the CEO has the power to choose his or her bosses, and the investors may be on the board, but they don't have the power to vote. They don't have the voting power to oust the CEO. There are not sufficient mechanisms for accountability. And if there isn't this appropriate disclosure to the investors, then they can't provide oversight and guidance because they don't necessarily know what's going on. So as startups started staying private longer, that pressure to— if— when that pressure to prepare for an IPO was removed, then they didn't sort of follow the natural progression of a startup that as it grew and became successful and began to prepare for an IPO would put in place, governance structures and internal control structures and bring in professional, executives with experience of public companies to sort of look like a public company, look like a company that's prepared to go public. And, you know, in the instances that I talk about in, my book Untamed Unicorns, investors are frustrated. They're trying to provide guidance. They're concerned about the conduct, and they're trying to correct the founder's behavior, but it's very difficult for them because the founder's in control. And they're also, I think, to some extent, conflicted because if they can solve the problems and keep them under the rug, they can preserve a successful out— exit. But if they come out with the problems and, you know, report misconduct or fraud, that's gonna have a negative effect on the company and could destroy the value. So, there's just this concern that I have that there's the new startup financing system where the founders are in control and the investors are relatively weak, creates environments where fraud or misconduct can thrive, and it could continue for a long time, before it's detected or at least addressed by the board of directors or the—

00:18:01 Andrew Keen: It reminds me a little bit perhaps of our new imperial presidency. Maybe. Failure of Congress to rein—

00:18:08 Renée Jones: —oversight. Yeah.

00:18:09 Andrew Keen: —him or her in. What about Uber? I know you use Uber as an example, in your book, but isn't the Uber model one that actually reflects the counterargument that Uber was taken public by Travis Kalanick [ed.: Uber's 2019 IPO came under Dara Khosrowshahi; Kalanick was forced out as CEO in 2017], who I used to know, a brilliant entrepreneur, but also a rather unpleasant fellow on lots of levels? He was eventually pushed out for his unpleasantness, and now Uber is run by grown-ups, and it seems to be doing okay. So why isn't Uber the counterargument? Because Uber went public and was a company that emerged in the twenty-teens. It wasn't part of the— the dot-com boom.

00:18:51 Renée Jones: So, I mean, I use Uber as an example because there are, you know, we have a lot of information about what was going on at Uber under Travis Kalanick's leadership, and there was a lot of misconduct. There was mistreatment of employees. There was sexual harassment. It wasn't being addressed. Uber's business model was essentially based on violating the law by not complying with taxi regulations, skimping on background checks. That, of course, created risks, not just for Uber's investors, but for its customers and its drivers. And so, you know, there's been incidences of violence that, customers are experiencing reportedly associated with kind of a lax background check process. And, a lot of those problems actually continue to persist to today. So one of my concerns, which I write about in the book, is that once a startup gets started and part of its culture involves, disrespect or disregarding or skirting or trying to change the law, right, that becomes baked into the culture. And even when it becomes public, you know, that disrespect for a law or that feeling that you're above the law persists. And so these public companies like Uber, Lyft, Airbnb, I think DoorDash would be another example, are continuing to clash with regulators and continuing to experience—

00:20:08 Andrew Keen: It's an interesting argument, Renée, but it— you've been— you know, you were educated at Princeton and Harvard. You could have become an entrepreneur. You chose to be a professor. You've worked at BC now for almost twenty-five years, so you have a kind of security. But the world of the startup is incredibly different as you know. It requires people to take risks.

00:20:30 Renée Jones: Right.

00:20:31 Andrew Keen: And isn't that baked into the very nature of things? I mean, I'm not suggesting that all startup entrepreneurs need to be as obnoxious and offensive and probably criminal in some ways as Travis Kalanick, but it does require, cutting corners. Let's take the example of YouTube. Some people will be watching this on YouTube. It's streamed live. YouTube is essential now. And, of course, YouTube began as a kind of pirate video network where a lot of the initial videos were stolen. I'm not suggesting that was the right thing. But the world that you're trying to perhaps promote is one where, it will become increasingly hard for startup entrepreneurs to take any kind of risks. I'm not legitimizing, sexual criminality or illegal behavior within companies. But isn't there a gray area between what you're trying to establish and a startup culture?

00:21:33 Renée Jones: I think there are some gray areas in the law that startups have been exploiting, but I think the examples that I use— I cite in my book are examples where, startups are deliberately violating the law, deceiving regulators. So one example would be Elizabeth Holmes. So when the regulators came to inspect the lab, you know, they hid parts of the lab so that the regulators didn't know what was going on when—

00:21:56 Andrew Keen: But that was just a— I mean, I'm not defending what Holmes did at Theranos, but that was just a straight criminal operation. I mean, she went to jail.

00:22:06 Renée Jones: It was a criminal— was it a criminal operation? I don't know. But I do know that they weren't complying with the law and that a lack of disclosure, weak governance, contributed to the noncompliance with the law. And, that the mechanisms, the accountability mechanisms that are in place at public companies, you know, independent boards of directors, independent, audit committees, and public reporting, including reporting on legal risks, provide some constraints. Right? So that, you know, the idea is that sunlight is— serves as a disinfectant. And if you're gonna have to report on something, you're less likely to do it. And if you're required to report on something and then you don't report on it, then you're gonna be exposed to liability. And all those rules, all those processes, we have in place for large public companies, but startups that are just as large aren't subject to those same requirements. And that creates, as I said, environments where this conduct and fraud can take hold and can persist for long periods of time. So I think companies should comply with the law whether they're public or private companies, and it's easier for a private company to disregard the law, to gain market power, to, engage in anticompetitive practices, and, use that market power then to either evade detection or to pressure regulators to change the law to fit within their business models. And we saw that Uber and, Lyft have done that. We've seen that Airbnb have done that. And, you know, the concept of the—

00:23:38 Andrew Keen: But some people are gonna be listening to think this woman just doesn't wanna— wants to discourage startups. Can we imagine a world without Uber or Lyft? We certainly can imagine a world without Travis Kalanick running Uber, although he has his own, robotics— But [unclear], he— he has his own, unicorn now, robotics startup.

00:23:59 Renée Jones: I'm not quite aware of what [unclear].

00:24:01 Andrew Keen: But, also, Renée, let me come back here with something else.

00:24:05 Renée Jones: Sure.

00:24:05 Andrew Keen: Before we went live, we discovered that my first wife was in your graduating class at Harvard Law School back in the early nineties. And I remember her first job offer out of law school was Enron. Isn't Enron the counterargument? Enron was a public company, profoundly fraudulent. The people ended up— many of them went to jail. Lots of people lost huge amounts of money. So the public markets don't always work, do they?

00:24:33 Renée Jones: No. And in fact, you know, I started teaching here at BC Law, right after the Enron scandal, right before or right during the time that Sarbanes-Oxley was adopted. And, you know, we did have a lot of fraud in the public markets, in the early two-thousands, Enron, WorldCom, I think, being the best known of those. And that led to significant reforms in the public markets. And a lot of my work is focused on public company governance and how to improve accountability, within public companies from board oversight, regulatory oversight, you know, effective accounting principles being applied. But what I saw was that a lot of the problems that I was focusing on with respect to public companies in terms of governance and maintaining effective governance had started to creep into the private company space. And, you know, I think Uber is a very good example because the, investors were frustrated with, Kalanick and the way that he behaved. And they weren't getting the information that they were entitled to from Kalanick, and they weren't he wasn't really responding to their requests slash demands. And, you know, it was more or less of a coup, that the, investors had to, engage in to get Kalanick to step aside. So they didn't have the power, the voting power to oust him from the board. So what they did was just use, you know, the power of public opinion and the press and leaks to drive him away. And so, you know, in a well-functioning, corporation, whether it's a private or public company, the managers are responsive to the directors. And the managers are responsive indirectly to the shareholders through the directors. So that system just isn't working. It's broken down.

00:26:20 Andrew Keen: So you mentioned Lyft and Airbnb, which are sister companies in some ways—

00:26:20 Renée Jones: Mhmm.

00:26:25 Andrew Keen: —to, Uber. Are they, arguments as well? They seem to they certainly weren't run by Travis Kalanick. I mean—

00:26:35 Renée Jones: No.

00:26:36 Andrew Keen: I know there are stories about some of the dysfunctionalities both within the companies and their business models, but, surely, these are good things. These are things that, new companies like Airbnb and Lyft and a lot of these other sharing companies. These are things that we should be encouraging.

00:26:54 Renée Jones: Oh, it's not good for the taxi drivers that were driven out of business because they undercut, you know, low— below— offering below-cost prices, driving them out of business, and then raise— raising their prices. I don't think that's good for the taxi drivers or for society generally. I don't think it's good for the, passengers who have been injured or assaulted because of the lax background check rules. So those are just two examples. With Airbnb, you know, I write about this in my book, the social cost of, the current, startup financing system. And Airbnb has, inflicted a lot of harm, in communities, they're not paying— necessarily collecting and paying occupancy taxes, so they're undercutting hotels. There's a bit— there have been significant problems with, with crime, assaults, murders, rapes at Airbnbs, and they're not necessarily, appropriately investing in security. So there's steps that they know they could take. They don't wanna take those steps because it might drive, people away from the platform. And then finally, with Airbnb, you know, they're [unclear] about, you know, race discrimination where people with Black-sounding names or Asian-sounding names have a harder time getting reservations. And Airbnb sort of is saying, well, we're not a hotel. We're not responsible for that. So they don't have to internalize a lot of the—

00:28:10 Andrew Keen: The product. Because— I mean, these are companies now that are public. Are you suggesting using the example of Airbnb, in terms of Untamed Unicorns? It's not a unicorn. It's a public company.

00:28:21 Renée Jones: It was a unicorn for, I think, ten— [unclear]

00:28:25 Andrew Keen: But are you suggesting that if it had different executives, a different finance model, that it wouldn't be doing the things that you're suggesting it's doing?

00:28:34 Renée Jones: No. What I am suggesting is that, while they're— when they're operating as a private company for extended period of time, they have the benefit of secrecy, where they don't have to disclose information to the public, to their employees, to their regulators so they can outmaneuver and outrun regulators, and like I said, engage in anticompetitive behavior and then use their market power to change the law. So now we're seeing these companies become so big and powerful, taking advantage of the secrecy that comes with private status and then using that power to sort of— I don't know what the right word is— to basically force changes in the law. So we've seen in California, even Massachusetts, Uber and Lyft, you know, banding together to prevent, you know, the laws or to overturn laws that classified their drivers as employees. So they know what the law is. They don't like the law. They're powerful enough now to change the law. And how did they get that power? Through the startup financing system and through the secrecy that comes with private status.

00:29:39 Andrew Keen: But these are companies that still— I mean, I know OpenAI, the Airbnb, Chris Lehane, who's a very influential, Washington DC— You smiled. Do you know Lehane?

00:29:52 Renée Jones: No. But I mean, his name comes up when I'm reading about this. You know. He's a character in these stories, I think, when— he's not there. We don't have any taxes, and maybe we'll pay a little bit of taxes. [ed.: cross-talk; passage garbled in source audio]

00:30:01 Andrew Keen: But Lehane, you know, is an operator in DC. Now he's— now he's Travis— not, not Travis. He's Sam Altman's consigliere at OpenAI. But he worked DC. I mean, these companies still have the resources to work DC. I mean, whether or not they're untamed unicorns, the nature of the American system lends itself perhaps to these kind of companies again to— you— to use a euphemism, cutting corners.

00:30:35 Renée Jones: Right. It's easier to cut corners.

00:30:36 Andrew Keen: So what should we do with, Renée? What should we do with, a Chris Lehane?

00:30:43 Renée Jones: I'm not gonna comment on that. As far as the, you know, what to do about the persistent unicorns, the unicorns that are getting bigger, that are having significant impact on our economy, that are employing thousands of people, but yet we don't know very much about what's going on. And the only way we really find out what's going on was when there's a scandal, when something breaks out where a whistleblower, you know, or an investor who gets frustrated reports it to the press. So I really advocate for more disclosure, for more disclosure, to employees who are getting stock options, but they don't necessarily have a lot of information about the value of the companies that they work for or whether or not they're likely to go public in the near future or have an exit event in the near future. I argue for, for the largest startup transactions, the largest private offerings, there should be disclosure. Investors need information to make informed decisions whether, you know, regardless of how wealthy or rich or sophisticated they are. If they don't have adequate information, they're not gonna make good decisions. So that has impacts, of course, on capital allocation, our concern about making sure that, you know, the money that's being invested in these companies is going to the best and highest uses. And investors can't make responsible decisions if they're investing blind. And we, you know, we see examples of—

00:32:00 Andrew Keen: Although, VCs, you know this better than I do, Renée, they're grown-ups as well. Reminds me of the end. I always bring this up. The end of Casablanca when the French— when— when a Frenchman says, when he was told that, there's gambling, he says, oh, I'm so shocked. I mean, our VCs know exactly what's happening. I'm not suggesting they all like Travis Kalanick. He's a very bad example of a, an out-of-control entrepreneur, but none of them are surprised. They know the way the world operates. Plus many of them have actually come from being successful entrepreneurs themselves. We've talked about Uber a lot. We've talked about Theranos, and, of course, Sam Bankman-Fried. Another example you bring up in the book, which is always an intriguing one to me because we did a show on it a couple of years ago, is WeWork.

00:32:55 Renée Jones: Mhmm.

00:32:55 Andrew Keen: And it's dodgy founder, Adam Neumann. In fact, there was a book out on Neumann. I was always incredibly suspicious of WeWork. I never understood the business model. It always seemed to me like a complete scam. Tell us about WeWork and why that's another example of an untamed unicorn that needed to be tamed.

00:33:16 Renée Jones: Sure. So Adam Neumann founded WeWork. It grew very quickly. It's— it's a co— you know, office-sharing space. Again, this is a model— a business model that's based on undercutting competition. So charge, you know, charge below cost for your product, drive out the competition. You can grow very quickly, really focused on growth, growth at any cost rather than, creating a sustainable business model. Adam Neumann was very charismatic, and he was a very— he was a great salesman, so he was great at raising money. He got— he raised a lot of money from some very prominent investors, including some of the largest mutual funds and the Vision Fund, which is run by SoftBank. So— Yeah.

00:34:01 Andrew Keen: That was certainly from the show we did on him. There was a cult-like quality. I mean, he wasn't— it wasn't a sort of mafia-like guy like, Travis, but there was certainly a— the— he has a kind of Jim Jones quality about it.

00:34:15 Renée Jones: He's charismatic, I guess, would be the term that I would use, and like I said, a very effective salesman. So the company grew very large. It was very unwieldy. They were spending a lot of money. They were grow— you know, it was a growth at any cost. They weren't really focused on profits. They were just focused on getting bigger and bigger. And Neumann was wasting a lot of money on, you know, like, himself, perquisites for himself and other types of problems. The investors were getting—

00:34:41 Andrew Keen: He spent a lot of money and his wife. It was a scandalous situation.

00:34:45 Renée Jones: Right. But investors weren't able to rein him in, and I think that's the main point. Pushing him to go public, he didn't wanna go public. They were spending so much money. They needed to raise more money. So there was a push to the public offering. But when they filed their IPO, they finally came clean with the public about everything that was going on, the governance structure, the spending, the self-dealing. The public investors were sort of outraged, and they weren't interested in continuing to invest in WeWork, and that IPO failed. And, you know, there were a number of restructurings that took place after that time. WeWork, you know, when— was— went public again via a SPAC merger or went public, I guess, for the first time. The first time they tried and failed. The second time they went public via a SPAC merger. Then within just a few years, it had filed for bankruptcy. So all of that money, the billions of dollars it raised from very sophisticated investors, basically, was worth zero. And employees, who were excited about the IPO, many of them exercised their options. They borrowed money. They paid taxes. And it turned out that those investments were essentially worthless. So, you know, not just investors, not just the venture capitalists who are losing money, which a lot of it is public money anyway. A lot of the venture capital money comes from public pension funds and other public entities. But not just investors are losing. The employees also suffered a lot. And then, of course, the competitors who are driven out of business suffered because of the—

00:36:12 Andrew Keen: And then Neumann, who, at least according to the Wikipedia, his Wikipedia page remains a billionaire. I'm not quite sure how since he lost a lot of other people's money. This is the kind of book, Renée, in our very frothy times on the brink of OpenAI and Anthropic IPOs later this year. People think, this woman, she's too conservative. She doesn't understand the nature of things. These are companies driving our economy. Of course, it's always easy to think that, and then maybe there'll be a crash. Maybe everyone will change their mind. If that happens, I know you're fearful of it, and, actually, I am as well. If indeed this very frothy, this irrational exuberance of AI, driven by what you call untamed unicorns, if it does come crashing down, what's gonna happen politically? Few days ago, we did a show, with Casey Michel, the author of United States of Oligarchy, about how America's wealthiest ally with dictators weaken the US and destroy democracy. It's about the broader financial corruption in this country. And he was speaking very sympathetically of Teddy Roosevelt and Teddy Roosevelt's ability to reform America. If this whole system comes crashing down, are we gonna need another Teddy Roosevelt? Someone to rearchitect the architecture, the infrastructure of American capitalism, and, of course, the engine room of that capitalism is the startup world you describe?

00:37:50 Renée Jones: So, I mean, I wouldn't have thought of Teddy Roosevelt. I kind of focus on, Franklin Roosevelt, President Roosevelt, and the nineteen thirties, of course, in response to the, Great Depression, Roosevelt was elected and put in place, you know, the securities laws were the first laws that were adopted as part of the New Deal, the 1933 Act and the 1934 Act. And those are the laws that required companies to make disclosure when they wanted to raise money from investors, and that put in place a system that worked pretty well, I think, for, you know, almost ninety years. But what we saw in the nineteen eighties is that system started to get chipped away at and with, you know, small exemptions, small loopholes that have gotten bigger and bigger over time. And now that disclosure obligation is basically optional. And so we have companies raising huge amounts of money, billions of dollars at once, not providing disclosure either to their investors and the public, and then growing to enormous sizes. And again, being shrouded in secrecy that allows a lot of, you know, undesirable antisocial behavior to develop and not be addressed for an extended period of time. So I think that, you know, the New Deal architecture is being dismantled. And I think, you know, if we don't preserve at least the core— core principles, core aspects of that structure, then there is— I am concerned about, you know, financial and economic instability in another market crash or the kind of governance scandals that we had in 2001, 2002, Enron and WorldCom when, the governance rules, you know, had become very lax, and then we took steps to address it. And those steps are being dismantled by the SEC. You know, pretty much that's what they're planning to do as we speak. Basically, repeal a lot of the Dodd-Frank and Sarbanes-Oxley rules, through, you know, greater exemptions to public companies from just their disclosure obligations. So not only are private companies— private markets getting bigger, but the SEC is planning to deregulate the public markets as well. So that's a big concern for me as well.

00:39:49 Andrew Keen: Well, it could be chilling or it could be exciting. Who knows? Renée Jones is warning us very clearly and unambiguously. It's an important new book. It's published by Harvard University Press. It's out this week. Untamed Unicorns: Why Startup Finance Is Broken and How to Fix It. Renée, I hope you're wrong, but I suspect you're right. Thank you so much, and congratulations on the new book.

00:40:11 Renée Jones: Thank you for having me.